THE BIG SQUEEZE NEWSLETTER ARCHIVES
Copyright Patricia E. Moody CMC 2006, All Rights Reserved
---------------------------------------------------------------THE BIG SQUEEZE NEWSLETTER
April/May 2006, Extending Your Reach
Think lean, think purchasing, think logistics, think packaging, think
transportation, think distribution – every nickel!
CONTENTS
1. One Plus One Equals Three, Consolidation of Manufacturing and Supply Management – Is
There Any Other Way?
Smart companies are looking not for somebody who
understands all the acronyms, but someone who has
experience in the profession, not in the industry.
Guy Carter, executive recruiter
Why would any company that spends 70, 80, 90% or more of its total
costs outside the company not consolidate all the money
management with a single professional, someone who understands
suppliers and contracts and technology trends, and true costs? Why
not structure an organization that reports in to the Chief Financial
Officer so that internal materials sourcing, and insourced and
outsourced processing/manufacturing, is managed competitively?
Makes sense, but only a few company CEO’s have this degree of
financial control in their operations because they have not
consolidated manufacturing with supply management.
We asked three top search consultants for their take on the best way
for professionals to meet this challenge…
2. Enough Arreddy – Spend Management Counts!
This morning I spoke with a leading lean consultant about
helping a client. What he said scared me…..
3. The Big Squeeze, Another Savings Idea from
the Experts,
Lean Packaging
“There’s money in them there little packages,”
Professor Diana Twede, Michigan State
University
You know we love those little packages, and the
big ones too. We love the way companies are saving
huge amounts of cash by moving to returnable
containers – “Cardboard,” as my friend Mark Preston
of Respironics says, “is not a world-class material!”
But there’s more to the packaging game than just
cutting corrugated and working deals with suppliers.
Harley-Davidson sits packaging engineers on their
design teams to ensure best value for best packaging
design, at the same time they are creating their
winning bikes and accessories.
In fact, one of Harley’s favorite suppliers, Milsco, is the
source of the following incredible payback stats. Dale
Opgenorth, Milsco’s packaging honcho, is always
working the cost reduction angle, and he’s built a great
reputation for results, including half a million dollars
worth! …..
4. Savings Throughout The Enterprise
It’s hard to be an expert in all functions,
especially Product Design and trucking. Start with
an Assessment that will identify your true savings
opportunities areas.
------------------------------------------------------------------------------------------------------1. One Plus One Equals Three, Consolidation of Manufacturing and Supply Management – Is
There Any Other Way?
Smart companies are looking not for somebody who
understands all the acronyms, but someone who has
experience in the profession, not in the industry.
Guy Carter, executive recruiter
Let’s try that one more time. You’ve outsourced 80% of your spend
but you still don’t control manufacturing?….. Hmmm, I see problems
ahead.
Why would any company that spends 70, 80, 90% or more of its total
costs outside the company not consolidate all their money
management with a single professional, someone who understands
suppliers and contracts and technology trends, and true costs? Why
not structure an organization that reports in to the Chief Financial
Officer so that internal materials sourcing, and insourced and
outsourced processing/manufacturing, is managed competitively?
Makes sense, but only a few company CEO’s have this degree of
financial control in their operations because they have not
consolidated manufacturing with supply management.
Extending Your Reach
That’s right, we’re not talking just about elimination of maverick
spending. That’s so-o-o 90’s. We’re talking complete spend
consolidation! Consolidating global manufacturing operations, and
supply management under the CFO solves the Lean Manufacturing
“sustaining the gains” syndrome that companies like Boeing and
others have experienced when they tried to extend Lean outside their
walls. It gets a lot easier when the financial reasons for picking and
managing the right suppliers become the organization’s mantra. And
it puts a lot of reality into Lean.
When Theresa Metty left IBM for Motorola, her job description started
in supply management, but soon included manufacturing. The
combined responsibilities produced more leverage to cut millions.
Willie Deese, a veteran GlaxoSmithKline supply management exec
now working a turnaround at Merck, covers global manufacturing as
well as supply chain. When shareholders insist on accountability for
profits, especially in downturns, the Income Statement becomes key
because that is where top execs shine, where product costs
subtracted from revenues equal net profit.
It’s personal, real personal…
But how does this concept relate to my career you ask? Well, if
you’re a besieged lean manufacturing pro knocking elbows with
thousands of other equally well-prepared Black Belts, you’re feeling
like an endangered species about now. If you’re a young
professional just starting out in Supply Management, the world may
be brighter and safer, but it’s still, let’s face it, not the glamour job the
analysts and Boards fawn over. Sure, supply management has been
known to save companies, but that’s not a base requirement in your
typical job description.
Three Pros Respond
We asked three top search consultants for their take on the best way
for professionals to meet this challenge. Guy Carter, of the Carter
Group (http://www.thecartergroup.com/) in Mobile, Alabama, an area
of North America to which so many automotive assemblers and
suppliers have migrated, is optimistic. “From where we sit, we are not
seeing as much combination of the functions. We have seen it
combined by $100 – 200M or less companies, but the billion dollar
ones tend to keep functions separate.” Manufacturing may not take
center stage, but other less glamorous functions such as logistics and
packaging, are stepping right up into the limelight.
Carter sees a strong trend here – “But I have to say that logistics has
become very important in the last couple years. What we are seeing
is large firms getting very serious about the complete supply chain
and its impact. They want to use the supply chain executive to be the
lead candidate in the turnaround of the company. There are dollars
to be made - usually it’s the supply executive doing the major piece of
helping make that turnaround.” Good news for any up-and-coming
supply management pro.
Career advice
Carter has some advice about how to prepare for taking on
turnarounds and profitability challenges – “Candidates should have a
variety of experience. There’s an equal number of females – it’s no
longer just men doing this. We see strong professionals with degrees
out of Arizona State, for instance. On the analytical side, finance
people have moved into supply chain sector, so it’s clear people are
going to have a variety of experiences.” And that could be a problem
with veterans who have some twenty-plus years experience
concentrated in one area. “Not,” warns Carter, “ to tell them to move
around, but they have to build their knowledge base “
Building your knowledge base helps candidates looking to cross
industry lines as well. “Take the utility industry”, says Carter, “They
figured out that they didn’t have the right skill set, and so they have
brought in some outside professionals, as well as the usual good
people from Florida Power and Light, a pioneer in quality operations.
They understand they will have to look elsewhere for infusions of
experienced professionals. Smart companies are looking not for
somebody who understands all the acronyms, but someone who
has experience in the profession, not in the industry.”
This powerful shift has benefited professionals from some pioneering
industries – high tech being one. “High tech people,” says Carter,
“have done a lot of supply chain work. Twenty-five years ago they
were sitting in manufacturing. Now, they have moved up the power
curve, and companies are looking for people with that experience.
They have to go outside to get that experience, and that’s a big shift.”
Heidrick and Struggles
Heidrick and Struggles, one of the premier executive placement firms,
is the group that placed the late Gene Richter at IBM where he
completed a $12B turnaround. This firm remains a continued leader
in big supply management searches - everyone wants to be on their
Rolodex. I posed the same questions to Cliff Wright, Heidrick and
Struggles partner based in their Atlanta, Ga. office
(http://www.heidrick.com/Offices/OfficeDetail.aspx?OfficeCode=ATL).
Question: Do you see that combining supply management and
manufacturing responsibilities - at a high level - is happening, and if
so, do you think it will continue, and why?
Wright takes a wide view of the power of an integrated supply chain
to contribute to genuine profitability. “There are four buckets - supply chain planning, manufacturing, logistics, procurement. That’s
kind of your integrated supply chain. When you incorporate the other
functions - Finance, IT and marketing - all of those other pieces get
tied into it and from a corporate perspective, that’s what makes the
whole thing hum.”
Total delivered cost is what counts
It’s not just about profits, but complete integration that gives
companies what many of them still wrestle with – better cost info,
what Wright calls total delivered cost. “At the end of the day it’s all
about total delivered cost, that’s why companies get lost. One hand is
not watching what the other is doing.”
He paints a familiar, nightmare scenario. “Sales, for instance, is
focused on driving top line - they might be running a special on
something, or running an ad, but no one tells manufacturing that
they’ve got a special running on a product. So manufacturing has to
run an extra shift to get this product out – but if the idea was not to
cost extra money in labor or overtime! They wanted to make more
money.” And that, warns Wright, is the crux of the
integration/communication problem. “If there is greater
communication, greater collaboration, that’s how companies will do
better.”
Green Volvos
Wright recounts another story to illustrate. “Three or four years ago
Volvo found itself long on green sedans, so they ran a special to get
rid of those greenies. It worked – people walked into showrooms and
drove off with those green bargains. Green Volvo inventories started
to drop, when all of a sudden up on the manufacturing production
screen, popped an Alert – ‘We’re short on green Volvos - we better
get going – we’re scheduling another production run - nobody told us
about the sale – wow, we’d better make more!” And that’s what
happens when there is bad communication inside the company!
Well-known examples such as Theresa Metty and Willie Deese aside,
why is it taking companies so long to integrate manufacturing and
supply management? “Most of them,” says Wright, “don’t get it. It
goes back to the four C’s - coordination, communcation,
collaboration and compliance – that’s what drives the supply chain,
and that’s a lot of effort, and that’s a difficult thing to do in any
organization, and the larger you are, to do on a global scale, it gets
very difficult.”
When Jerry York, now a Kirkorian honcho on GM’s Board, was IBM’s
CFO, Gene Richter knew that his mandate - to eliminate maverick
spending and consolidate to leverage IBM’s multi-billion dollar spend
- was clear and well-supported. York, a West Pointer who had also
worked for Iacocca, has a reputation for being tough and straight.
Richter said IBM at that time of the turnaround was like a drowning
man, desperate for a lifeline, no questions asked.
But that is not the case with all companies that truly need to
consolidate. In fact, Wright feels that “most CEO’s are very hesitant
to issue any mandates - no one likes to do that sort of thing, so it’s
really up to the individuals to go in and influence, persuade and build
that trust with those relationships, to make things happen.” It’s a
softer approach, but is it really what American industries, such as
automotive and its suppliers, can afford to do right now?
How much time do we have?
Wright believes that the softer approach takes longer. “And the
problem is you have to be in those roles long enough to build the
relationships. Normally if you are not in that role long enough, if you
move out of that role, somebody has to go back in and start all over
again. There has to be a commitment at the C level - commitment at
the ver top - to make this happen. And until people really understand
the value of supply chain it’s not going to happen.”
That’s tough news for eager professionals in supply management
ready to tackle the whole enterprise, from Value Engineering and
supply management, down through manufacturing, packaging, and
logistics - because it means their next job may still be limited to
traditional procurement.
Different industries define their supply chain with different borders. A
narrow view, simply procurement, is missing a lot of opportunity. “If
it’s a retail environment you can pull out manufacturing, but the
challenge will be planning logistics and procurement,” says Wright. “It
depends on what world you are addressing. Most people say
procurement is where you can have most influence.”
Our third question was aimed at helping ambitious supply
management pros and their CEO’s focus on the right skill set. We
asked our three executive recruiters if, in the ideal combination of
supply management and manufacturing responsibilities, it is better to
bring in a lean expert or a supply management executive? What
skills/experience would one look for as essential in someone to
handle both these functions?
It depends….
The answer, of course, – is it depends. Wright feels “I think honestly
it depends on what your problem is. If you are a manufacturing
company and you have problems on both ends – a manufacturing
problem you’re trying to “lean out”, and if you’re not buying well
either, I would bring in a procurement person. Because here is the
thing, if you can reduce your costs 5%, to equal that you would
have to increase your sales by 50%. They still don't get it -– the
smart ones do, the big guys. If you are one of the top 25 consumerbranded companies, most of them get it.”
How much you gonna pay for that?
But are they willing to pay for the kind of talent and experience that
can integrate a supply chain and deliver profits? Not always. Wright
cites a disappointing, but not uncommon, story to illustrate.
“Here’s an example. This is almost sad, but spot-on. I was talking to
a company that is a $5B distributor of steel. They needed a
procurement person who would be responsible for their spend, about
$4B.” When Wright asked, ‘How much are you going to pay?’ the
response was disheartening – ‘We don’t want to pay him more than
more than $200 – 225k.’ ‘You’re kidding’, Wright responded. ‘Is he
on the executive team?’ ‘Nope.’ ‘Well okay, does he get stock
options?’ ‘None.’ ‘Well, I’m confused. I don’t think we’re going for
right level. If somebody were controlling 75 – 80% of my revenues
and I didn’t have them that close to me, I would be concerned that I
did not have the right person.’ He looked at me with defiance, and I
said ‘I think you need to find someone else to do the search.’ ‘Well,
maybe I do.’ Although he tried to convince me to take the search, I
priced myself out of it. It’s disappointing, but that’s the mindset - ,
here is a $5B company with this kind mindset, and it was coming from
the CFO! He was in the right place - he should have known better he was thinking small.
“Now,” said Wright, “if that were me, I would want the best person I
could find in that particular arena of metals, someone who knew the
commodity metals industry backwards and forwards, somebody who
could bring me the right deals.”
What’s it worth to you?
What does “the right person,” a well-educated, experienced pro with
knowledge of his or her profession, command today? (You can
exhale now, it’s good news folks….)
“The right person would have been $275 – 300K with a 50% bonus, a
$450 – 500k per year guy, because that person is going to bring an
additional 5- 7% maybe 10% to the bottom line, an additional $200M!
So they didn’t get it, and they are still not a client. There are times
when you don’t want people as a client, because they don’t get it.”
Wright makes his living doing search, and he knows a dead-end
when he sees it. “Being in the business for as long as I have, I get to
pick and chose who to do business with. There’s a headhunter out
there for everybody. There is somebody who will do that assignment.
He will do a very average to mediocre job, exactly what that client
wanted, somebody he could control. But we all know that what that
CFO really needed is an exec who, when he got bad direction –
would push back.”
So what is the ultimate measure of the success of combining mfg.
with supply management? Is it profitability, or simply solid cost
reduction? Dave Nelson, former worldwide supply management
chief at Delphi, has seen both, and he is, says Wright, still ranked as
one of North America’s top supply management leaders, despite
Delphi’s troubles.
“Some things, ” says Wright, “you can’t control. “Sometimes you
bring on the absolute best you can bring on, like Dave, but Dave
doesn’t know what has been agreed upon (the GM/UAW contracts,
for instance), what’s has been put in place, so his hands are tied - he
can only negotiate his way out of certain things.”
“So, what is ultimate measure of success? – the ultimate measure is
having a totally integrated supply chain that is working with all the
other functions, working well with them, finance, sales and marketing,
really focused on total delivered cost.”
Another manufacturing recruiter weights in
Rich Witowski is a executive recruiter and president of
Sanford Rose Associates in Greenville, South Carolina
(http://www.sanfordrose.com/about/statelistings.asp?specialt
y=SC&submit=Show+Offices). His recent searches have
included manufacturing management, site management,
controllers, manager of inventory and cost.
Witowski posted a unique VP position that combined supply
management with manufacturing on Monster.com. I wanted
to know more about this unique search and Witowski’s
expectations. I asked how often Witowski saw this type of
combined position. “It’s not something that we see fairly
frequently - this company is not as big as Motorola – and
they have a unique problem they are trying to solve in their
supply chain. So rather than trying to hire two people, they
decided on this new job.”
In a business that is 100% outsourced it makes sense.
Here, the product is highly engineered - final operations
consist of assembly, calibrate and ship. When a very good
engineering department designs for assembly, putting it
together is the easy part.
Witowski had a different take on which skills are more
important to bring to this position – supply management or
manufacturing/lean. “Quite honestly, for all the jobs we work
on today - mid to upper - everybody has to have lean or Six
Sigma background because there’s always a better way to
do their job. If you haven’t been through it, it’s a big learning
curve, so companies want candidates who bring examples to
the table. Manufacturing management probably has more
all-around-experience requirements versus a supply chain
person. A supply chain person is an office guy who gets
quotes, whereas manufacturing has to understand the
supply chain and how it integrates into the manufacturing
part of it – they are ultimately responsible for inventories.”
What does this say about the ultimate measure of success of
combining mfg. with supply management at this job posting?
Witowki believes that the uniqueness of this particular job
posting is a reflection of this particular company’s unique
dilemma. He thinks their measure of success will be
managing excesses and obsolete inventory because of what
their unique problem is. “They have written off several
million of that type of inventory because of the overall
process. They’ve got people out buying stuff because they
think they need it, then engineering makes changes because
they think it’s a good idea, and by the time the part comes in,
it’s already obsolete!”
This new position is another integration challenge. “Whoever
takes on this job will need to get his arms around the whole
organization pretty quickly to create an efficient supply chain
system that will reduce obsolescence.” The challenge is
complicated by a typical lack of good data. Like so many
companies, this one, says Witkowski, “doesn’t know how
much is excess in spend - they have an R & D guy
managing the spend right now. He wants it to be right and
he doesn’t care how much it costs!”
A strong leader could work miracles given these problems.
It will take someone who understands what supply chain is,
and how to get everybody together.
If you’re a supply management pro looking to move to the top of your
profession, be conversant in lean, as well as logistics, packaging and
transportation. If you’re a member of manufacturing’s endangered
species, you don’t have many places to go, but try to pick up some
experience in supply management. The experience will move you.
2. Enough Arreddy – Spend Management Counts!
Take a look at your favorite American automotive stock – the market
don’t lie.
This morning I spoke with a leading lean consultant about helping a
client. I told him we needed someone to help reduce spend in several
areas – transportation/logisitcs/distribution, and packaging. I didn’t
mention we are also going to bring in Value Engineering, one of the
most difficult but greatest contributions to product cost in early design
stages. He assured me that he had done all sorts of things in
transportation, logistics, kanban, placement of replenishment
materials line side, or cell-side. BUT HE ASKED ME WHAT THE
WORD ‘SPEND’ MEANT!
Whoa. What does that tell us about where US manufacturing is
today? Well, we’ve got the kaizen methods down cold – we should
have, because we’ve been perfecting kanban and 5S - all the things I
wrote about in Powered by Honda, The Kaizen Blitz, and The Perfect
Engine - years and years ago.
In 1989 David Halberstam wrote that the U. S. auto industry was
headed for a shake-out caused by the fact that there would be 5 cars
for every 4 buyers. Now, that was almost 20 years ago, and I have to
say that GM and the other Detroit giants, and their suppliers, have
spent those 20 years working way too long, and I mean way-y-y too
long, on kaizen. And total culture change. Religion. Give me a
break! Even Toyota understands what spend management is, how to
do spend analysis.
When companies outsource significant amounts of their product, say
85% as in automotive, or almost 100% in electronics, that means that
the guys who control spend, the CPO (Chief Purchasing Officer), or
buyers or commodity managers, or VP of supply chain, are controlling
most of the cost that goes into products. Manufacturing is generally
reduced to on-site assembly, not as big a contributor to spend as it
used to be.
So here is my frustration – why is it that lean manufacturing experts
know everything they could possibly know about kanban, something
that it shouldn’t have taken 20 years to learn, but they don’t know
what the word spend means. And why is it the guys I see running
supply management/procurement/purchasing, understand lean
manufacturing quite well, since many of them are helping suppliers
get lean, and they damn well understand spend management and
spend analysis, but they aren’t running manufacturing?
Get real. We don’t have a lot of time left to fix this. Give the guys
who control most of the money that companies spend on productmaking the whole enchilada – supply chain and manufacturing and
engineering (whoa that’s a big one!) – and get the hell out of the way.
Let them find the money. It’s not about The Lean Religion, folks, it’s
about aggressive management of the big numbers, the ones that
make the difference between profitability now, and a painful, hungry,
singular focus on only manufacturing, and only lean manufacturing,
and only lean manufacturing with no technology assists (even Toyota
uses computers now!)
Enough. Do it. .
-------------
3. Lean Packaging
“There’s money in them there little packages,”
Professor Diana Twede, Michigan State
University
Cardboard is not a world-class material!
You know we love those little packages, and the big
ones too. We love the way companies are saving
huge amounts of cash by moving to returnable
containers – “Cardboard,” as my friend Mark Preston
of Respironics says, “is not a world-class material!”
But there’s more to the packaging game than just
cutting out corrugated and working deals with
suppliers. Harley-Davidson sits packaging engineers
on their design teams to ensure best value for best
packaging design, at the same time they are creating
their winning bikes and accessories.
In fact, one of Harley’s favorite suppliers, Milsco, is the
source of the following incredible payback stats. Dale
Opgenorth, Milsco’s packaging honcho, is always
working the cost reduction angle, and he’s built a great
reputation for results, including:
Talk about Big Squeeze, since May of 2000, he has saved the
company about $438,000 in packaging costs: - Reduced shipping costs for incoming materials by going from 4
layers to 5 layers per TL, by changing packaging
- Changed pallet designs, consolidations
- Consolidation of parts to increase quantities, better price breaks
- Switch to returnables from suppliers
- Change packaging materials, example: upgrade one item so that
can reduce other packaging components.
- Plus many more small items, which add up to large savings
Opgenorth is a self-described believer in "Changing the Paradigm"
who wants to open our eyes to the importance of good packaging
design. Write to him with your packaging design questions c/o
tricia@patriciaemoody.com.
Packaging design savings at HP
I featured a fresh look at packaging approaches in The Big Squeeze.
Professor Diana Twede (Associate Professor, School of Packaging
Michigan State University, East Lansing, MI 48824,
http://www.packaging.msu.edu, write to her c/o
tricia@patriciaemoody.com) is a woman in love the with possibilities
of great packaging design – from pallet loading, to individual
container ideas. The following excerpt from The Big Squeeze
logistics blog (www.LeanTransformation.com) also cites the breakthrough work
at Hewlett Packard of a MSU grad, Kevin Howard: Those poor little packages can do an awful lot for you.
You can cut transportation costs in half if you make the
package half the size. We have an alumnus at HP –
Kevin Howard - responsible for postponement on
packaging of printers – $2 million per month savings –
not ft from customization or inventory reduction, but
mostly because he cut the cost of transportation in half.
They shipped printers all over the world, mostly from
Vancouver, Washington, with no packaging.
So here’s how it went – it started with customerization.
They had printers packed in boxes in Vancouver. If a
printer was going to France, it would be boxed with a
different power cord and a different manual and language.
Sometimes they would have the wrong number of French
printers in the wrong place – they could not predict
demand well enough, were always tearing apart and reboxing. That’s where Kevin started. He came up with a
box you could customerize and then he went beyond that.
You could ship into a DC in Europe, for instance, and
then ship the order out from there, customerize the label,
manual, etc., for France or Germany or Poland. .There
was an article in HBR about postponement, but what the
article didn’t talk about was that by shipping without the
box and without cushioning- the only reason you put
cushioning around the printer is to protect from the
danger of drop damage from waist high loading on the
dock and so since they are shipping to the foreign DC in
pallet load quantities, they don’t need customization, and
the pallet won’t be dropped because it’s a bulk pack.
Once the bulk pack reached the DC, they customerize
and ship out as a onesie. Think how much volume the
polystyrene foam cushion takes. Just by getting rid of the
cushion, the bulk pack can hold twice as many bare
naked printers as when in the box.
Kevin used foam sheets and stretch wrap, so the air
containers can take twice as many. So what happens
when you ship twice as many printers in the same space?
You cut transportation costs - $2M/month including all the
extra packaging cardboard, foam, labor in foreign
countries. Plus you save on inventory because you’re
shipping a generic printer, instead of one printer for
France, one for Germany, one for Poland. But the biggest
savings was the cube savings, and that’s a hard message
to convey.
We have computer programs that help figure out pallet
stacking; you program the shipping container dimensions,
and the software tells you what patterns on the pallet will
best utilize the space. One package is called CAPE, a
competing one is TOPS. The nice thing about them is
they start with the shipping container size and give the
best pattern, but they also can redesign the shipping
container so it better fits on the pallet. If you make
shampoo or Rice Krispies, you could figure out the best
size for the cereal box - just by changing the box by a
couple millimeters, more goes on the pallet, therefore
transportation costs drop.
Remember on transportation over the road either cubes
or weighs out. There is a weight limit, usually 40k pounds
per trailer. If you are shipping beer in glass bottles, you
can never fill up the trucks as it weighs too much. In that
case your packaging strategy is to change the weight. If it
cubes out, you have to figure out how to reduce the cube.
If you have beer in glass vs. plastic bottles, you’ll get
more bottles into the truck! When people have looked at
this, they saw they could change the weight of the glass
also.
Another example of how to reduce transportation costs –
pallets take space, and everybody is trying to figure out
how to get the pallet out of the ocean container, but still
handle the material mechanically, not hand load. HP has
done a lot with looking at slip sheets, board under load,
special lift truck – not forks – which reduces the amount of
cube and still is mechanical. Saves money.
4. Savings Throughout The Enterprise
It’s hard to be an expert in all functions,
especially Product Design and trucking. But there
are resources to help you start the journey. Start
with an Assessment that will identify your true
savings opportunity areas, from Design, all the
way through sourcing – raw materials and MRO,
labor, manufacturing, packaging, transportation,
logistics, even energy costs. Because there’s
money in them there ideas!
----------------------------------------------------------------------------------------------------------------------NewsletterFebruary
CONTENTS:
FROM THE EDITOR: JUST HOW MUCH IS ENOUGH?
Happy Valentines Day Readers! This newsletter is dedicated to
savings – savings from lean, savings from kaizen, and most
especially savings from spend management and analysis, the fancy
definition of all the savings ideas contained in my little business
novella, The Big Squeeze, Ten Ways to Cut Your Company’s
Expenses 10% Right Now! (www.LeanTransformation.com).
I want to give you a complete portfolio of savings ideas – from all
across the enterprise – ideas that generate guaranteed savings for
small and medium-sized companies, as well as the biggies. I want
you to save money during boom times and lean times, even when
you have no extra bodies to send out on shop floor waste reduction
campaigns…
FINDING SUBSTANTIAL SAVINGS BEYOND LEAN
You’ll find huge savings in the most ordinary places.
When manufacturing managers first experimented with kaizen more
than 15 years ago, they targeted only a few areas for improvement—
set-up time reduction and changeovers and shop floor inventory. The
methods and results were so impressive and revolutionary that the
kaizen campaigns grew and morphed into a whole lean
manufacturing approach.
But the limits of lean showed themselves when teams dug deeper
into layers of complex global supply networks. …
MORLEY’S MESSAGE
“You’re not going to diet your way to financial success…”
A Message from NCMS Chairman Dick Morley: It’s About Tech, Not
Lean – Finally!
Lean is a very interesting concept.
Anorectic patients aren't very healthy, but anorexia – and we’re
talking about corporate anorexia, an obsession with no inventories,
no waste, no food, no fat, no flexibility - eliminates the need to make
choices. It makes people very comfortable because they're doing the
"right thing." …
AND NOW A WORD FROM OUR SPONSOR…. The Big Squeeze,
Ten Ways to Cut Your Company’s Expenses Right Now!
www.LeanTransformation.com:
You say you want to blow the doors off those Cost Accountants – you
want your name imprinted on the CEO’s forehead, and not because
there’s a bounty out on your hide…
TAKE WHAT’S IMPORTANT TO YOU
If the Dragon Lady had her way, this was going to be a short
assignment...
------------------------------------------------------FROM THE EDITOR:
Just how much is enough?
Happy Valentines Day Readers! This newsletter is dedicated to
savings – savings from lean, savings from kaizen, and most
especially savings from spend management and analysis, the fancy
definition of all the savings ideas contained in my little business
novella, The Big Squeeze, Ten Ways to Cut Your Company’s
Expenses 10% Right Now! (www.LeanTransformation.com). We want
to give you a complete portfolio of savings ideas – from all across the
enterprise – ideas that generate guaranteed savings for small and
medium-sized companies, as well as the biggies. We want you to
save money during boom times and lean times, even when you have
no extra bodies to send out on shop floor waste reduction campaigns.
How much is enough?
If you are just starting on this journey, expect to find some incredible
and big savings opportunities – in the 20 – 30% range. For those
operations that have a few best practices and some dedicated
sourcing people, expect to generate 3 – 5% savings every year. But if
you are experienced, or an expert in spend management and savings
– and you know who you are – the numbers, and the degree of
difficulty go up. You have passed the plateau of sustaining the gains
and you’re well on your way toward using technology tools to become
the cost leader in your enterprise.
$$$
FINDING SUBSTANTIAL SAVINGS BEYOND LEAN
You’ll find huge savings in the most ordinary places.
When manufacturing managers first experimented with kaizen more
than 15 years ago, they targeted only a few areas for improvement—
set-up time reduction and changeovers and shop floor inventory. The
methods and results were so impressive and revolutionary that the
kaizen campaigns grew and morphed into a whole lean
manufacturing approach.
But the limits of lean showed themselves when teams dug deeper
into layers of complex global supply networks. …Stories abound
about companies that have had difficulty sustaining the gains—quick
studies such as multiple-Shingo Award winner Delphi and Boeing.
But in fact, there is plenty of gold to be mined in the industrial
heartland. Call it lean, call it strategic sourcing, but call it first of all
real savings—quick cash to fuel new products, new plants, and new
employees. If your operation needs to find faster sources of
immediate payback, look for the ordinary, overlooked opportunity
areas. …
One area to look for savings involves trains, ships, and planes.
Logistics represent nearly $1 trillion worth of costs every year. For
example:
Blog entries from the book, “The Big Squeeze,” illustrate the
opportunities to achieve savings.
--Milk runs. [Such] runs save transportation money and build more
consistency into your supply network. If you are a small company,
consider buddying up—consolidating—with another small company
with similar needs, and the two of you will save money…
For the rest of this article, visit the APICS (American Production and
Inventory Control Society) web site , www.apics.org and subscribe
by putting e-mail address in the appropriate box in the lower left-hand
corner of the APICS home page.
Additional Resource
For more information on lean beyond the shop floor, read Moody’s
article, “Mining for Gold: Execute Lean in Unexpected Places,” in the
March 2006 issue of APICS magazine.
&&&
MORLEY’S MESSAGE
“You’re not going to diet your way to financial success…”
A Message from NCMS Chairman Dick Morley: It’s About Tech, Not
Lean – Finally!
Lean is a very interesting concept.
Anorectic patients aren't very healthy, but anorexia – and we’re
talking about corporate anorexia, an obsession with no inventories,
no waste, no food, no fat, no flexibility - eliminates the need to make
choices. It makes people very comfortable because they're doing the
"right thing." Remember, if you're comfortable, you're doing
something wrong. Lean - in the animal sense - means that you're a
pampered racehorse and can do nothing else; you have no reserves
to change markets, product, ideas, time to markets, personnel and
the like.
As an example, when a major US construction equipment producer
was on strike, all the laborers left. Management then ran the plant
and delivered more products at a higher quality than when the union
was there. In fact, they estimate that on a per capita basis they were
able to triple the productivity of the union guys. But to my
astonishment, when the union came back, they were all rehired, and
they put the smart guys in charge and the untrained guys back in the
plant. They did get incremental improvement in productivity from what
they learned (by running the plant with their hands rather than with
their handbooks), but nevertheless the number of per capita went up
by a factor of three and productivity was the same as if the managers
ran the plant.
Put your best people in the plant
I don't know what the message is in all of this, but I think it's an
important one. Having quality people in the plant means more than
lean manufacturing ever meant. Lean manufacturing means the lack
of inventory, the lack of finished goods inventory, the lack of nonproductive assets in the plant and these are all good things. But if you
eliminate non- active equipment in the plant and eliminate all sorts of
inventory, whether it's work in process, parts for assembly or finished
goods, then you better be doing the exact right thing all the time.
This is what we know according to Shannon's information theory.
Claude Shannon pointed out that information cannot be stored.
Information is what you don’t know. We can store data but not
information - that is the physics definition, not the casual definition.
And since we don't know what will happen, we cannot predict the
lean specifications.
We do not have the information - all processes contain noise, and
lean assumes we have no noise. Tthe "perfect" transmission of
messages takes an infinite time. If we are extremely lean, we take
forever to make a change – but enuff of theory, the message is that
skinny people die first.
Where did Lean come from anyway?
There is some emotional suspicion that the Japanese pushed lean
manufacturing in order to snooker us into doing it, which would
obviate the need for change. Most of us wish the days of yesteryear
were here. If we made a rigorous example, such as Japan for many
years in the nineteenth century, no progress is made. They are
comfortable, insulated and isolated but they eventually die. Like the
Panda that can eat only bamboo shoots it's a very difficult to survive
when the bamboo shoots have a bad year.
If not lean, then what?
Technology, in my opinion, is the only way to create wealth.
Lean manufacturing is a way NOT to spend wealth. It is not a way to
create it. Let me illustrate - I often tell the story that I do not like the
Chevrolet as a car. It is perfectly fine, it's high quality -- it's just my
personal esthetic taste. These things sell for, let's say, less than
$30,000. They believe I would like the Chevvy at $25,000.
The other story I like to tell is that a car's components (such as on a
small car) are $500 in steel content, $750 in software and silicon
content, $1000 for litigation reserve and $1500 worth of benefits for
labor, about $3750 total. In other words, this is not the reason that
GM can't sell their cars. This is not the reason that GM doesn't make
any profit. It's GM's legacy excuse.
So anorectic leanness is not a good thing because when an anorexic
person gets sick they have trouble - they have no reserves to draw
on. There are no protein, muscular, health or strength reserves.
Manufacturing and productivity are a very small percentage of today's
enterprise. Rumor has it that the iPod manufacturing cost in China is
$20, leaving $380 for postage and IT for Apple Corp. And what's
wrong with that?
I just finished a conversation with some angels on the West Coast.
They have not seen a manufacturing start-up in years. They see 300
or so deals a year and seldom see one. We see 2000 business plans
a year and seldom see one. The capital market knows what the
problems are – and it's not manufacturing issues, but business
issues. The business issue is - how do we create wealth. And we
know that the way to create wealth is with technology. Moving it
around helps individuals, like Wall Street, but seldom, if ever, does it
help the corporation. Mergers and acquisitions are historically failures
on a statistical basis; even acquisitions like AOL.
We must be extremely careful about leanness. Of course it is difficult
to be an Olympic contender with excess material on your body. But
the Olympic contender can only do one thing well -- run fast!!!
My bottom line
Lean manufacturing limits choices, eliminates change and
INCREASES time to market. Yes, it does reduce costs, but since the
total manufacturing costs are 5% or so of the business
concerns, a 20% reduction in mfg. costs is only a 1% reduction
in total costs!! Microsoft has no plants - the innovations (not the
companies) are purchased from the outside. Microsoft is in effect a
trading and product company.
Harvesting technology is important. The inability of a modern
corporation to accept failure and to make changes with the
understanding that there is risk entailed is a major fault. We used
to have five-year planning and it's gone away. Now we have five
month planning!
What does all this mean? Any technology takes a year and a half and
a million dollars to fail. The failure rate, I guess, for internal is a factor
of two. All you need to succeed is to make sure you finance
two engineering or technology thrusts. You will statistically win with
one of them, which makes your company a viable organization once
more. Growth and profit are the proteins of the business.
Richard E. Morley (Morley@Barn.org) ), the Chairman of NCMS,
holds some 20 patents, including that of the programmable logic
controller (PLC), and has founded 27 companies, including
Modicon/Groupe Schneider. In 2000 he was awarded the
Prometheus Award, and he has been profiled in Fortune magazine as
a Manufacturing Hero. His books include The Technology Machine,
with Patricia E. Moody (The Free Press, Simon & Schuster), and Out
of the Barn.
&&&
AND NOW A WORD FROM OUR SPONSOR…. The Big Squeeze,
Ten Ways to Cut Your Company’s Expenses Right Now!
www.LeanTransformation.com:
You say you want to blow the doors off those Cost Accountants – you
want your name imprinted on the CEO’s forehead, and not because
there’s a bounty out on your hide. Yes, that’s it, you want to stun
them with your cost saving brilliance, you want to win a ticket to the
executive washroom. Well, get started bunky. Take a look at these
stellar, career saving moves from the blog that will win friends and
influence people-
Overhead
Take a good careful look at how products are costed in the overhead
area. When volumes increase, overhead should not proportionately
increase, because really, volumes are independent of traditional cost
accounting overhead protocol.
Payment terms
Payment terms can get you 2 – 4% savings if you can give the
supplier better cash flow. If he knows you are going to pay his
invoice, preferably electronically, in less than 30 days without
prompting, that saves him a lot of paperwork, hours of crossmatching of invoices to shipping documents, et., and that’s labor
costs. So many customers are extending their payment terms that
suppliers are happy to encourage quicker receivables by offering
discounts.
From Quentin Samelson at Motorola:
Conduct an inspection tour of the stockroom, receiving dock, etc.
One of the things that experienced operations people do is a
walkthrough, looking for:
* Stacks of FedEx (or other airfreight) labels. If many are found in
the stockroom, airfreight is probably being used inappropriately – too
much. This can be an easy way to cut operating costs quickly.
&&&
TAKE WHAT’S IMPORTANT TO YOU
If the Dragon Lady had her way, this was going to be a short
assignment. The Blitzer Brother’s third-generation family moneymachine, Lightolier, of Jersey City New Jersey, was getting
bombarded by out-of-the blue fusillades of single-hit order quantities
four and five times the “average” volumes – stock-outs, rush orders,
and general distribution chaos were the order of the day.. So we flew
down to NY – no one suggested the motels on the Jersey side booked a rental car, and a room on the Upper East side at the
Barbizon For Women in the sixties. Ah, Manhattan – sophisticated,
expensive, busy, shop-worn. Ah, Jersey City…. Whatever.
The introductions were thorough. Romey and I – Romey Everdell
was my boss, a New Yorker at heart who was thrilled to also be
booked into the Barbizon for Women, because the last time he visited
this fine hotel, he had to drop his date in the lobby. We met Ralph,
the beleaguered production control manager; the brilliant Blitzer
brother who “designed things” and raced a Etchells sailboat; the elder
Blitzer Brother who belonged to the NY Zoological Society and
seemed to be a numbers guy; the hardsome and well-toned
President, the distribution center supervisor, and an assortment of
characters whose means of surviving cubicle life were endearing and
memorable.
There was Hans, the man with the Austrian accent and a number
tattooed on his wrist who came in late and left early – Hans was well
into his eighties, courtly, impeccably attired, and dangerous – one
would expect holocaust survivors to be saintly and pure. That may
have been true with Hans, but I learned after our brief introduction to
keep a chair or four feet or airspace between me and Hans’
wandering hands!
But that afternoon the best introduction of all was saved for last – the
Dragon Lady. This Asian beauty had a real name which I have since
blocked, but her 2 inch stillettos – her working shoes! – and flame red
nails made a strong impression, like musk in a crowded subway car.
She was the president’s tennis partner – and she’d worked in this
company, in this office, in this particular spot, surrounded by all the
data one could ever consume, for years. She knew she held
limitless, unfettered power – information is indeed power – at the tips
of her lacquered fingertips, and she intended to use it.
Well, the ways of statistical methods are many and deep. In other
words, that stock-out situation that sends your warehouses into a
tizzy might just be good news for corporate profits – think it might
indicate increased demand from usually quiet markets? There was,
as Romey frequently reminded us, only one path to Truth, his mentor
Dorian Shainen’s dictum “Let the data lead you”. He advised a
couple weeks of data digging and analysis. I suggested a statistically
derived large order screen that would capture and specially deliver
those humungous orders that clogged and crippled Lightolier’s frail
distribution system.
Feed the machine
But it would take data, piles and pounds of good historical data,
numbers as pure as the customer’s clearest dream – what they really
asked for, not what the company’s limited production system
or warehouse could ship. And we needed three years of detail – three
years being the minimum required to run a good statistical test.
Naturally, the keeper of this most precious information commodity,
the Dragon Lady, hesitated. She was not eager to let those historical
records out of her sight, but with management invention – in
consulting you learn quickly how to escalate - we were able to effect
a negotiated settlement in which she selected “the right records”,
which where in effect checked out to a nearby work desk where I
could peruse them for hours, within clear sight of her eagle eyes. It
was heaven, all the numbers, and all the time one could hope to bill,
in one happy location, the seventh floor of an early 19th century brick
factory building
The numbers told a story, and soon some intriguing patterns
emerged indicating which lighting products exhibited unusual volume.
I crunched columns of numbers from piles of printouts until my fingers
ached. I simulated a Large Order Screen at two sigma, and ran the
data to see which hits should naturally pop out – the results must
have been acceptable, because the next step was to test a screen on
other product lines.
The commute from Manhattan’s Barbizon for Women was going well,
and the morning ride through Central Park over to the tunnel was a
joy. Soon my cubicle neighbors had settled into quiet acceptance of
the consultant from Boston. I crunched away, and by the end of the
first week, I had developed and successfully tested a Large Order
Screen that promised to make sense of what the company’s
distribution supervisor incorrectly labeled a Poisson distribution.
The second Monday of our engagement, at 11 am a horrendous
shrieking - the fire alarm – froze my finger mid-punch. We ran to
the windows – seven floors down the fire trucks were just rounding
the corner – this was not a drill, it was a real emergency. And there
was a critical choice to make – would it be the ancient freight elevator
that rose next to the paint shop – an altogether unattractive option
that reeked of solvents, or the wooden staircase marked “Exit”,
seven flights from the street? I hesitated – my neighbor fling her
purse over her shoulder as she spun out of her chair.
“Take what’s important to you,” she advised.
I stalled – what bad timing! But the other employees knew better.
Hans quick-stepped to the staircase, a testament to his holocaust
survival instincts. Even the managers chose to run – they’d rather
scamper down a smoking staircase than risk being stranded in the
freight elevator.
I understood. But still I paused – frozen by unacceptable choices –
just what was important to me, what could I carry to safety down
those seven flights, what could I not leave to the sprinklers and
whatever other terrors ensued? Would it be the calculator and data
sheets, and print-outs that I had captured from the Dragon Lady, or
my Bottega Veneta cordovan leather briefcase, or my new Celine
handbag?
Calculated survival
What would you take? How fast can you run down seven flights?
Well, there’s a lot to be said for good numbers, and good legs as well.
When you’re in Jersey City on the top floor of what I nicknamed The
Triangle Shirtwaist Factory, the choices get clear real fast. Take the
calculator and the printouts and the stairs – you’ll never get another
shot at the true demand data. Run for the nearest exit and live to
crunch another day.
-------------------------------------------------------------------------------------------------------------Patricia E. Moody Newsletter, January 2006
Copyright Patricia E. Moody CMC 2005
Contents:
From the Editor – Take It, Take The Money! Millenium
Pharmaceuticals’ Savings Solution
What’s the first place to look for savings?
Bob McIntuff on How to Get Through Tough Times
PowerPartners’ Consortium Deal Saves 30%
Want to Save on Fuel Costs? Here’s how Tyco does it….
Harley-Davidson’s 20% Savings
-------------------------
Take It, Take The Money!
There’s money out there, 10, 20, even 30% savings on all the
cash your business spends to ship product, buy materials, hire
and develop human assets, even the fuel it takes to heat and cool
the plant. There’s money everywhere, but until now, most
companies focused on a very narrow slice of production
opportunity. And many have reached a plateau where, despite
enthusiastic teams and visionary champions, they have not been
able to sustain the gains.
But good lean execution extends to any area of the extended
enterprise, from product development, all the way out to the
shipping dock and beyond – trucks, drivers, distribution centers,
even DC order processing. Lean execution is not just a
manufacturing problem any more – supply management,
logistics, transportation and packaging pros as well are
competing to hit the mother lode first!
It’s a startling and long-awaited change. Eight years ago when
I wrote The Kaizen Blitz with Doc Hall and Tony Laraia, we
showcased 21 pioneers, including Pratt & Whitney, Pfizer,
Jacobs Manufacturing, and Hamilton Standard, that had
achieved Incredible savings just by focusing on a few key
production processes. We started with clear opportunity areas
such set-up time reduction – bingo, 70 – 90% cost savings,
followed by inventory reduction for 30 –70%, productivity and
cycle time improvement, 20 – 60%, and finally, walking
distance reduction for 40 – 90% cuts – We learned that sneaker
wear in operators’ shoes was an indicator of bad material flows!
We didn’t understand all the challenges our kaizen teams would
lead us to, but when Jim Womack covered our 21 pioneers in
his million-seller Lean Thinking, we knew we were headed in
the right direction.
Lean is not the entire answer, the only answer
Lean is intended to remove all wastes, but most companies
have by now tapped into initial savings from the shop floor. But
what about the other areas in the extended enterprise that your
lean teams cannot reach? These areas are the last spots of
resistance, stubborn holdouts that make it hard to sustain the
gains.
Are there savings to be captured here as well? Yes, but only if
your company is willing to consider more innovative
approaches beyond kaizen events, supplier development at the
first tier, and culture change.
The Next Generation of Lean
Let's look at a range of approaches to bigger and longer-lasting
lean gains. Each of these case examples captured 10%
savings - some more, and they represent low-hanging fruit that
builds momentum for more challenging projects to come later.
There are three steps to successful Lean Execution. First, it's
important to pick your targets well; second, capture the savings,
and VTC (Verify, Track and Control). VTC is a methodology
that verifies captured savings, and continues to maintain
visibility to those savings by adjusting budgets to sustain the
cost reductions. If VTC is not applied to Lean savings initiatives,
savings tend to evaporate.
Let the data lead you. Dorian Shainen, Shewhart Award
winner
Consolidate to leverage the spend
Motorola cell phones illustrate another example of savings in
unexplored areas. The life cycle of every new communications
device parallels Moore’s law – new generations of cell phones
appear every six months or sooner. But supply managers know
that what engineers put inside that newest, sexiest model
doesn’t have to be all new components. Take batteries for
instance. Design engineers may love variety, or they may have
access to endless on-line catalogs, but it’s really procurement
that pays the bills, and it should be procurement that consults
as a trusted advisor when this kind of potentially expensive
decision-making takes place.
The late Gene Richter, CPO during IBM’s mid-nineties
turnaround, had a dream - to have a “buyer at every engineer’s
elbow.” Essentially his hope was that a good ERP system
would successfully integrate all the procurement cost,
manufacturing and design issues in a single planning tool to
enable decision-makers to see the impact their sourcing and
design decisions had on total product cost. He knew that if
everyone could see the same cost numbers, their decisions
would most of the time allow buyers to leverage a bigger,
consolidated spend.
Gene’s dream was not unrealistic, but he was ahead of his
time. It took some 15 years to reach the kind of software
integration capability that makes it easier to eliminate waste by
leveraging the spend.
Until your operation finds it own magic wand, you too will have
to rely on labor-intensive searches for the numbers that tell the
story. The right info – the gold – may reside in accounts
payables invoices, or in purchasing order files, but wherever
money is spent, you’re sure to find waste, the number one
enemy of lean execution.
Millenium Pharmaceuticals’ Savings
If your buying operations are decentralized, procurement will
find it more challenging – but not impossible – to consolidate
the spend with fewer, cost effective suppliers. One of the
barriers to extending lean production gains to the second and
third tier of the supply base is getting control of a complex web
of suppliers and partners. Here’s how Millenium
Pharmaceuticals of Cambridge, Massachusetts is tackling lean
savings opportunities in unexpected areas. .
Ken Morsch, Sr. Director of Strategic Sourcing at Millennium,
cites two very successful projects. The first addresses how the
anti-cancer drug producer brings experts together to share data
and research findings. “Every year,” says Morsch, “Millennium
runs hundreds and hundreds of meetings all over the world.
We might schedule meetings on clinical studies in locations
where people are most likely to come – Orlando in February for
instance, or Boston in October.” Meeting planners pick the
location, set up the venue, meals and lodging.
Millenium also schedules dozens of sales meetings all over the
country to help educate doctors on new drugs. These
conferences might accommodate groups of a half dozen to fifty
at regional and national levels. “Inevitably,” says Morsch,
“there would be a glitch – a meeting at Boca Raton, for
instance, would have to be cancelled, and we would be looking
at a huge cancellation fee. There was no synergy in the
company.”
The solution? A central sourcing group that monitors all
openings and closings across the company. Morsch’s
commodity managers run the sourcing side and negotiate with
the venues, after which a meeting planning group steps in.
Morsch estimates that by centrally sourcing meetings, his group
will save several million dollars per year.
Better yet, says Morsch, Millenium’s smart new buying
approach puts them more in control of the marketplace.
“Instead of having 500 buys at the market price on the day we
wanted, by consolidating we can go to the provider – Starwood,
Marriott, Hyatt. We never had that leverage before. We have
always had airline partners, but we did not have venue
partners. Now, on our reservation system, we have a
centralized booking request system that captures meeting
requests. Central planning now has everything they need to
get us better terms and rates!”
Once Morsch saw the potential in Millenium’s innovative
savings scheme, he took it one step further, and cleaned up the
“meeting mess in Cambridge.” “This sounds really simple,” he
said, “but we had people going over to the hotel at MIT for
meetings. That’s very dumb, and very expensive. So we have
blocked out some internal conference space, and we’ve taken
over the reservations and bookings in our central group to keep
groups on site.”
Ca-ching!
All in all, Morsch estimates his innovative spend management
projects saved the company $1M in three months.
But wait! There’s more….
Project number two offers us a glimpse into a better way to
manage the lifeblood of Millenium’s 22d century operations information, huge amounts of genetic and oncologic data in
endless detail. The second savings project, required, according
to Morsch, a philosophy change by users and IT, about what
types of data needed to be available on what basis, and for
whom. “Biotech/pharmaceutical companies have vast storage
requirements from activities like genomic research, or
molecular modeling. Storage and access to every bit of detail
is expensive and unecessary. The project team divided
availability into tiers 1, 2, and 3, based on the immediacy of
need. By reducing the amount of information available to tier 1,
the most critical and most immediate data, huge savings were
realized – about 80%.
A genomic company generates vast amounts of data.
Millenium had saved every bit of this data for its entire twelveyear history. “We kept everything live and instantly accessible
by anybody, at any time,” he recalls. “That created huge
amounts of machinery and people requirements. So then we
started really looking at who was accessing this data, and we
discovered that there were whole storehouses that nobody had
looked at in years!
“Just by categorizing the data, and seeing how much we really
needed at a given moment - obviously only active projects are
hitting data hard - now with archival material we can still go
ahead, - there is only a slight delay, it’s not instant or live. So
we need fewer servers, there are fewer backup requirements
because we are not backing up vast amounts of information all
the time, just what the user has touched. There is no reason to
do back-up if we have the current back-up copy. Everything
about this project reduces our IT needs”. The Information
Technology department is the benefactor of the change that cut
the number of servers, the kinds of servers, and the frequency
and duration of backup. Millenium proved that not everyone
needs access to all the information all the time.
Morsch urges other companies to think this through. “I believe
100 year- old companies with thirty-year old systems will find
the same dilemma. I would expect that there would be more of
an impact on companies of a similar life cycle as ours. But
eventually everybody has to get to this – you can’t afford not
to.”
Every project contributes to Millenium’s Strategic Sourcing
aggressive $18M savings goal for 2005. Morsch sums it all up
this way. “We have 200 projects that we do in a year, but they
don’t all achieve 10% savings. We have established multiple
categories – in my department we have the meetings and IT
projects, but there are also clinical and R & D projects. They
are all looking for savings – we take any size, although we don’t
record anything below $10,000. But everything we get we put
on our Benefits Tracking system.”
Lean execution is in the details. We created a blog to gather
savings ideas. The result, an avalanche of innovative
suggestions, took three weeks to dig through. When it was all
sorted and cleared, there were dozens of cost-effective ideas
from unexpected areas – transportation, logistics, packaging,
healthcare, communications, fuel, even office equipment. I
categorized and gathered them all into my new book The Big
Squeeze. One lesson that emerged from the dozens of
savings ideas we received was that when lean projects plateau
in one area, it’s time to move on to more fruitful territory. Most
likely that means getting other functions involved –
procurement, shipping, even HR, but as companies like HarleyDavidson, Motorola, and Millenium Pharmaceuticals know, it’s
the only way.
Patricia E. Moody CMC, www.patriciaemoody.com,
is a non-traditional consultant and writer. Her clients
include Fortune 200 leaders such as British Petroleum,
Waste Management, Motorola, Respironics, and Johnson
and Johnson. She writes business books that help
companies increase profits; Fortune magazine recognized
her as one of “Ten Women Pioneers in Manufacturing.”
---------------------------------------------------------------------------------------------What’s the first place to look for savings?
As both a procurement professional and a manufacturing person, I'd
look first in my MRO area. I've always said that MRO (office supplies,
janitorial supplies, industrial and safety supplies, etc) is like the red
headed freakled step child of procurement. It's there out of necessity,
but no one pays much attention to it. And that is the place with
phenomenal payback with the least amount of effort.
Just figuring out what you buy and stopping the back-door buying can
save you a bundle.
If you are a small to medium-sized company, you should consider a
consortium. You can start your own or hire an existing consortium to
do it for you. By pooling your spend with other members of the
consortium, you can qualify for the big discounts that large
companies receive because of their size. It's called harvesting the low
hanging fruit.
Barb Shepard, C.P.M.
ISM Affiliate Support Council
Chief Operations Officer
Global Group Purchasing, LLC
bshepard@globalgrouppurchasing.org
www.globalgrouppurchasing.org
----------------------------------------------Getting Through Tough Times…
An unusual message about getting through it – tough times, plateaus,
unplanned transitions….
from Bob McInturff, of McInturff and Associates, a search firm based
in Natick, Massachusetts
Bob McInturff is an old friend from my Data General Days. Actually,
we were in a race to see which one of us would escape first, and he
beat me by a week. His family's firm, McInturff and Associates, sent
me to Rath & Strong, and he left to build the practice. He now happily
runs a search and temp firm specializing in manufacturing and supply
management/logistics personnel. He has seen hundreds of personal
transitions played out among his clients. Not to oversimplify and boil
all of these experiences down to a single formula, nevertheless, Bob
wrote a longish piece
(http://www.mcinturff.com/economy/econ_home.html) about the post911 economy and getting through a recession. The best part of this
piece, the part that makes it timeless, is what Bob says in his last four
paragraphs are the steps he himself uses to get through every day.
Bob’s newsletter covers employment, the economy, how to do a job
search, etc., but I wanted to extract the last three paragraphs from
one of his messages about "getting through it".
For many of us, a setback or even a big transition, is paralyzing.
Personally, I like to go to sleep. Some of us like to drink. Whatever.
Here's
Bob's advice on "getting through it":
Clearly, we're not looking at wonderful, uplifting news these days. If
you're currently not working, the stagnant job situation can make it
hard for you to be motivated to go out and find work.
That happens to me too. The passing of Labor Day is my yearly
signal to get back to work. I admit that I am not a good casual worker,
so I have to "formalize" to gear up for the day. I dust off the good
shoes, put on a nice pair of freshly pressed pants, a starched shirt
and a tie. Thus arrayed, I can drive to the office ready to do business.
When I reach the office, I take time to project my goals for a short
time frame so I have a good idea of what I can achieve. I find the
contacts I need to reach, then I force myself to make most of my calls
first thing in the morning, because I do my best work then.
I accept rejection knowing it's part of the job and I consider my day a
success if I keep making the calls until I've reached my goal for that
day. The end result I look for? I get a new job to fill because I put in
the time, effort and attitude.
That's what works for me, but we all motivate ourselves in different
ways. Find out what works for you and sooner or later you'll be
rewarded for your effort.
Reprinted with permission from McInturff and Associates
“Perspectives.”
30% Savings from Consortium Buying!
When Power Partners, an Athens, Georgia transformer manufacturer,
a spin-off of European giant Asea Brown Boveri, took a look at their
office supplies spend, it gave them a headache, a big headache. So
they turned to Global Group
Purchasing,(www.globalgrouppurchasing.org) a Columbus, Ohiobased purchasing group, for help.
GGP arranges consolidated, lower cost deals on office supplies and
furniture, construction equipment, industrial and janitorial supplies,
tools, and MRO items.
Sarita Jihad, Power Partners' veteran buyer, was happy to sign on
with GGP because not only did GGP relieve her headaches, but they
came through with solid 20% discounts right away. She started with
office suppliers; next will be MRO supplies.
The joining fee is $2500; to date Jihad estimates $22,000 of annual
savings. "We had 5 suppliers before - one local and the rest all over.
We did all the paperwork - we would call in and create a blanket
order." Now, says Jihad, "I just go right on line with my order, get
confirmation, and the item shows up next day. We get a monthly
report on total spending and savings. We're cutting out paperwork, as
well as cutting out unauthorized users. There are no freight charges
at all, no minimum order quantities, and I can even order a single
unit. I am glad we are doing it now.”
Next up for headache relief is MRO. Current buy for the group is
10,000 sku’s from 200 suppliers, which will drop in three months to 5
suppliers. Preliminary review of Power Partners’ parts list of some
10,000 sku’s also promises minimum 20% savings.
-----------------------------------------------------------------------------------Want to save on fuel costs? Take a lead from these energy users!
Three airlines recently reported profitable 3d quarter results - can you
guess which ones?
You got it - Southwest, JetBlue, son of Southwest, and Alaska Air!
Something about their earnings reports rang a bill - fuel hedges! Fuel
hedges are the ultimate purchasing protection. They are contracts
that lock in fuel prices, usually well below market prices. And they
saved Southwest $295M in one quarter, despite the fact the this
carrier paid 40% more for this basic commodity than same time one
year ago.
Savings from Tyco
We had a blog entry come in from Tyco that talked about saving on
fuel buys, specifically natural gas. We printed it in The Big Squeeze.
Here it is:
There are simple opportunities in the utilities spend at every facility.
Electricity, fuel, etc. provide fairly easy opportunities to bring more
cash to your companies bottom line. We are beginning a project of
replacing our old lighting system with a new highly efficient lighting
system that will have a ROI of less than 2 years on an investment of
$100,000.
We're also exploring our natural gas options and how we're buying it
now. If you buy direct from your local utility you always pay the "spot
buy" or current market price. There are organizations out there that
offer services to look ahead and forward buy on this commodity and
lock into a more favorable price. Depending on market conditions a
company can save thousands of dollars on this as well. Organizations
that practice "spot buying" in areas like this are playing catch up with
their savvy competitors.
Utilities is a commodity that every MRO Buyer should take a look at
for cost saving opportunities.
Michael Gruis, C.P.M., A.P.P.
MRO Buyer
Tyco Safety Products
Marinette Operations
--------------------------------------------------------------------------Harley-Davidson Achieves 20% Savings By Paying the Sub-tier
Directly
Harley-Davidson likes to innovate, and in their supply base, they've
managed to come up with a few really great savings twists. One of
them takes a good look at sub-processes and sub-sub processes,
deeper into the Bill of Material.
Plus they've figured out how to cut paperwork, and at $35 - $50 per
transaction, it all starts to add up. Here it is:
From Brian.Hietpas@harley-davidson.com
Product Category Manager – Material Cost
I am the category manager of material cost at Harley-Davidson. My
department monitors material costs including metal markets,
currencies, other raw materials and their impact on commercial cost
reductions with suppliers. Harley has design engineers and
purchasing engineers that design and agree on up front pricing with
our suppliers. Once parts are in production, my group works with the
supply base, ops purchasing, value engineering, and design
engineering to continue to pull cost out of current parts. From a raw
material standpoint, with recent steel and aluminum price escalations,
the metal market analyst that works for me, has seen an ever
increasing work load evaluating cost increases that our suppliers are
coming to us with; he looks at what metals are doing to their margins
and evaluates if price relief is warranted.
We have a lot of good initiatives on-going 1. On-site, supplier residents. We have suppliers that work at Harley,
with Harley contractor badges that allow them to work up front with
design engineers to make sure the design fits the suppliers’
processes. About 20 suppliers are supported by “on-sites residents” for instance, the harness supplier is on site, full–time. We have 4
Delphi engineers that supply ECM’s, instrumentation, and throttle
bodies. ...engineers, not sales people, that become involved at the
product development center from day 1 ...to save cost by designing
components that fit their manufacturing processes and use the latest
technology. Another example would be a casting supplier resident
that is on sight helping us design the geometry of castings to enable
better mold tooling development.
2. Pay the sub-tier – Harley has many supply chains, such as for
chrome parts, and stampings houses. For the stamping house, for
example, we buy chromed and unchromed stampings. With chrome
stampings, the tier 1 supplier is the chrome house. When we buy a
chromed stamping, we pay for the part but we actually buy two parts,
we buy the chrome and the stamped portion. That way we aren’t
paying material markup for the stamping as it goes through the
chrome house, so we have undone tiering relative to payments. In
effect, we make two payments - one to the tier one supplier – the
chrome house - and one to the tier two supplier the stamping house.
When we get the finished product – it is received under one part
number, the final part number – then both suppliers get paid. How
does this save money? Let’s say the stamping is $10, and chroming
is twenty additional dollars, if we were to just buy the part, all done
from final supplier, that supplier would buy the $10 stamping part,
bring it in as raw material, and they would put the raw material markup on it, approximately 20%, or $2. The $2 would be added to the
$10, plus all their processing, $20 value add. “In the old days” the
total would be $32, but now its $30.00 We’re dealing with a little more
paper, but it’s well worth it.
3. In the development process, we have implemented a very stringent
cost breakdown requirement of our suppliers. They are all required to
break down our purchase price to a very minute level, in some cases
suppliers don’t have the level that we ask for, but we feel that our
purchasing engineers have to understand the cost drivers of all of the
components they buy to make sure that the high cost drivers are
being evaluated and hopefully reduced by design changes or process
improvements.
4. Sequencing of parts from the supplier. – Here’s an example. We
are building 150 Dyna motorcycles every day, and we sequence the
seats so that the assembly line pulls up the cart and the parts are
arranged all in sequence, same thing with shocks. We order them by
part number, but they come in by our build sequence.. For seats, for
instance, we have five different types for a a particular model, but
those 5 parts don’t come in boxes by part number that then need to
be separated and sorted on the line, the supplier sends them in
according to our build schedule. The box goes directly to the line and
the operator has what they need in order. There is no in-house
staging, which is extra inventory, extra handling, extra packaging,
extra cost!
5. Returnable packaging
Excerpted from The Big Squeeze, copyright 2005, Oaklea Press, with permission. page 163
Everybody wants to save money
. But sometimes the usual methods won't get you that 10, 20,30% savings that your company
needs.
We went to the experts - purchasing pros all over the world, and we asked them to submit their
savings ideas. We were avalanched with solid savings ideas - it took us three weeks to dig out!
We sorted and collated, then published the best ones in the book <I>The Big Squeeze, Ten Ways
to Cut Your Spend 10% Right Now! </I> But the ideas kept on coming, from companies such as
Harley-Davidson, Dell, Motorola, Delphi, Ford, Honda. And we signed got ideas from the leaders
in manufacturing and supply management – Theresa Metty, Brad Holcomb, Dave Nelson, and
others – as well as new people whom we’d like to hear more from. .
We've got savings ideas from MRO, and packaging, logistics, trucking, travel, even that most
precious commodity - fuel! And they are still coming in, so we've decided to share the best ideas the ones that any company can quickly and easily capitalize on - in a monthly <I>Big Squeeze
Newsletter</I>. Starting now....
There's gold in them thar' packages, and gloves and uniforms..... Transportation and logistics,
with rising fuel prices and more driver regulations for the trucking industry, make it even more
important for shippers and receivers to pay attention to packaging and distribution, including truck
routes. HP and Home Depot are money-saving pioneers - click on their savings successes!
We decided to update our readers with monthly newsletters containing the best of the best
savings ideas. Who says smaller businesses can’t find big savings?
When companies want to create a competitive advantage by purchasing components and
services better and cheaper than anyone else, they need to look beyond the obvious, the usual
solutions touted by consultants and the media. Take gloves, for instance. That’s right gloves, the
disposable, necessary type found in welding and other shop operations.
Think gloves are unglamorous? Think again. How does <b>one half million
dollars</b> in savings, just from rethinking what types and quantities of
gloves, sound?
Here’s the deal. John Deere’s fifteen North American plants purchased in
one twelve-month period over 424 different skus of gloves totaling $1.4
million.. Supply Management suspected Deere buyers of investing in too much
variety, but they had no idea how deeply this simple item was impacting
Deere’s costs. It took a student intern working several months over the
summer to dig the data that made it all clear.
It seems that she discovered by speaking with a Deere supplier that a
welding glove they sold to a competitor for $1.50 was cleaned after being
used for welding and sent out to the line for other uses – two
applications for the $1.50 purchase price. But Deere’s cheapest price for
an all-leather, one time-use glove was $7.50. Planners immediately
recognized that this $7.50 custom solution was overkill that represented
money thrown into the trash at the end of every shift.
But it meant they had to switch, and the estimate was that instead of 424
different sku’s, Deere production <b>could easily work with only 25
varieties.
The immediate savings were an astonishing 35% of the total $1.4 million
glove spend, about a half a million dollars, for one simple category! </b>
Variety costs more money than plain vanilla. Motorola discovered this same
phenomenon in its cell phone batteries. Design engineers may love variety,
or they may have access to endless on-line catalogs, but it’s really
procurement that pays the bills, and it should be procurement that
consults as a trusted advisor, when this kind of expensive decision-making
exercises take place.
The late Gene Richter, CPO during IBM’s mid-nineties turnaround, had a
dream, and it was to have a “buyer at every engineer’s elbow.” Essentially
his hope was that a good ERP system would successfully integrate all the
cost and design issues in a single planning tool that would enable
decision-makers to see the impact their sourcing and design decisions had
on total product cost.
Gene’s dream was not unrealistic – it did take some 15 years to reach the
kind of software integration capability that makes it easier to do the
work.
Until your operation finds its own magic wand, you’ll too have to rely on
going after the numbers, data digging and bare bones review. The
information may reside in your suppliers’ accounts payable invoices, or
you may find it in purchasing order files, but it’s there.
But that’s not all! There was another benefit to the student intern’s
data-digging, and that was a newfound belief in procurement’s ability to
deliver incredible savings in a short time, with no internal pain, no
layoffs, and no squeezing of suppliers. Not bad for a start, huh?
Now that we’ve shared the classic John Deere half million-dollar glove story, here’s a new one
from a VP of Strategic Sourcing in Texas, Ellen Lasser, CMC Recycling, Dallas, Texas, a
division of Commercial Metals Company. This savings idea is worth 20% on their spend.
“The savings are where you least expect it…”
We are in metals – collection, processing, sales, recycling. CMC is a Fortune 500 company with
11,000 workers worldwide.
We buy scrap metals from manufacturers, demolition companies, and individuals. We separate
and process the metal, sometimes by baling it or shredding it. For instance, we buy car bodies
that have all the parts removed and shred the bodies into little tiny pieces. The shred is put into
rail cars to be sold to the mills. CMC has 4 mini steel mills.
CMC has an incredible history and a great financial picture. Our founder Moses Feldman was a
poor immigrant. One day Moses was walking dejectedly down the street – he had no job and was
frustrated with the lack of work. He was so upset he kicked a tin can on the sidewalk, and then
stopped…. and looked at it again…, – “ I bet I could get some money for that can…” he thought.
That was back in 1915, nearly one hundred years ago.
Since then the company has grown and gone public – our stock has been amazing. This is a
great place to work – CMC is known to be one of the most ethical companies in our business. For
three years in a row we have won the Dallas Business Ethics Award.
The steel mills are in a separate division, and we also have fab shops that take steel from mills
and fabricate rebar, the steel rods used in highway construction, also joist, the steel part of a roof.
Our business is doing well in this good economy that creates a lot of construction. We’re also
exporting to China – there is growth in China in recycling.
“Take a look at the little things”
My experience is that the savings are where you least expect it. You might think, “We’re going to
combine all our spend, and buy all our forklifts from one place, and get big savings.” The truth is
you aren’t gong to get huge savings, they are already cut to the bone, but take a look at the little
areas – advertising in the Yellow Pages, for instance. Here we found got enormous savings, but
not so much in our heavy equipment.
Blades!
Here’s another savings area - big mobile shears that chop up metals so it can be baled. These
shears use blades, and we realized if we combine all blades, go out for bid and chose one
vendor, there are tremendous savings. To me anything over 20% is big savings. . It used to be
we could that kind of savings on office suppliers, but that’s not true any more.
Uniforms! Thousands of uniforms!
So those are some of the things that generate savings. Here’s one that we did that’s a lot of fun,
and it’s still going on – uniforms. The whole company has 11,000 workers, with 8000 in the US
alone, and many of them wear uniforms. But what we found out was not only were we using
every company that made uniforms for each location, but we also found a huge array of uniforms.
Some people had the very least expensive, some locations had everybody in different colors, and
some people had very fancy uniforms.
So the first thing we did was put a team together to create a ……uniform policy! We ended up
with one vendor and five basic uniforms – the 65/35 polyester shirt and pants, a 100% cotton shirt
and pants, and 100% cotton shirt and jeans, plus new items such as two versions of ARC flash
uniforms required to meet OSHA standards.
Standardization saves cash
Where before we were looking at over 100 different kinds of uniforms, after we standardized on 5 basics,
we’re at 20 % savings. Uniforms are a big spend item for us as well as many other companies. These items
cannot be washed at home in a regular machine, so we were so proud that we found a way to cut 20% off of
a basic operating cost. It was very exciting for us to take the spend and leverage it, and then achieve
standardization.